IRS headquarters in Washington, D.C.
Andrew Harrer/Bloomberg

Clients may come in having heard that the IRS actually audits relatively few returns. But the IRS is more than six times more likely to challenge returns than is commonly reported, according to H&R Block.

While the IRS claims to audit one out of 143 (0.7 percent), translating into slightly more than a million taxpayers each year, millions of taxpayers also face “automated audits” each year, according to Block. That means taxpayers have one chance in 23 of the IRS challenging some aspect of their return.

The official audit rate can be misleading because the IRS has other ways to ask for verification of the accuracy of their returns and assess additional taxes, penalties and interest. “The IRS has automated matching programs and filters to reach many more taxpayers than it could with traditional audits,” said Jim Buttonow, director of the prep-chain giant’s tax audit and notice services division.

Citing the IRS Taxpayer Advocate, Block reported that in 2011 the IRS conducted 1.56 million audits of individuals but questioned more than 11 million additional returns using automated audits. In 2018, IRS systems continue to use automation to question returns.

With automated processes and earlier deadlines for employers and other payers to submit reporting documents, the IRS can automatically match taxpayers’ returns against 1099s and W-2s; when there’s a mismatch, the IRS sends a notice asking for explanation. In 2016, the IRS conducted a little over a million audits on individuals but sent more than three times that number of “matching” or CP2000 notices.

“Technically, these aren’t audits. But that doesn’t really matter, because they feel like audits to most people when they get a letter from the IRS asking questions about their return,” Buttonow said.

Jeff Stimpson

Jeff Stimpson

Jeff Stimpson is a veteran freelance journalist who previously served as editor of The Practical Accountant.